Novated Car
Leasing Myths
What
is Novated Leasing?
A novated lease
(colloquially know as ‘salary sacrificing’) is basically a three-way agreement
between an employer, an employee and a finance company. The employee gives
consent to “sacrifice” some pre-tax salary to pay for their vehicle. The
employer agrees to make the payroll deduction on the employee’s behalf. The
finance company sets up the deal and handles administration. If the package is
structured intelligently, at the end of the term all the employee needs to do
is hand the keys back and decide what car to buy next. Novated leases are a
popular form of cost- and tax-advantaged car financing and the government
estimated that there are approximately 320,000 drivers in Australia who are
currently salary sacrificing a car.
“Even if you use
your car exclusively for private purposes, the government gives you an 80%
concession on the FBT. It’s a significant benefit,” explains Bill Baker from novatedleasing.com.au.
“When you purchase
a car using a novated lease, you buy it essentially GST-free. The repayments
come out of your pre-tax salary, which means that some of the funds you’d
otherwise pay in tax help you pay for the car. It reduces your taxable income.
The entire ownership cost – inclusive of insurance, registration, fuel and
servicing, can even be wrapped up into the one consistent monthly payment.”
Novated leases are
also an opportunity for employers to reward key employees – at next to no
additional cost on the bottom line. Key employees have a huge impact on
profitability, and novated leases represent a significant benefit to those
employees – and at the same time all that’s really required to make them happen
is appropriate paperwork and a monthly payroll deduction.
Myths
About Novated Leasing
Nevertheless there
are a few myths associated with novated leasing, as follows:
Myth:
Novated leasing is an administrative nightmare
While some
employers might perceive that novated leasing constitutes an administrative
burden, this is not actually the case. In practice, financiers manage the
admin. There is initial paperwork, but once a novated lease is in operation,
there is just one monthly invoice to pay, which can be automated.
Myth:
Novated leases are for business-use only
There is a
lingering perception that novated leases can be arranged only for cars actually
used in business, as a tool of the trade. In fact, using the vehicle 100% for
personal use is absolutely within the scope of novated leasing acceptability.
The government merely gives you a concession – effectively an 80% free kick on
the FBT.
Myth:
Novated leasing is for brand new vehicles only
It’s also commonly
believed that novated leasing is available only on new vehicles. The truth of
the matter is that some late-model used vehicles can be purchased with a
novated lease, subject to acceptability criteria.
Myth:
Employers are guarantors of novated leases
Who picks up the
tab if the employee leaves the business? Simple: in this situation the employee
remains responsible for making the payments. In other words, a novated lease is
portable so it would belong to the employee. Novated lease cars
are not “company” cars.
Original document published here.
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